Mutual Reliance Review System for Exemptive Relief Applications - Relief fromregistration and prospectus requirements granted in connection with acquisition ofconsulting business of a number of non-reporting companies and partnerships by aforeign non-reporting issuer. Shares issued in consideration for consulting business tobe held by custodian and sold on foreign stock exchange over five years. Relief fromissuer bid requirements granted in connection with potential forfeiture of shares backto foreign issuer or it affiliates, pursuant to terms of various acquisition agreements.
Applicable Ontario Statute
Securities Act, R.S.O. 1990, c.s.5, as am., ss. 25, 53, 74, 95-100 and 104(2)(c).
Applicable Ontario Rules
Rule 45-501 - Exempt Distributions.
Rule 45-503 - Trades to Employees, Executives and Consultants
Rule 72-501 - Prospectus Exemption For First Trade Over a Market Outside Ontario.
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM FOR EXEMPTIVE RELIEF APPLICATIONS
IN THE MATTER OF
CAP GEMINI S.A. AND THE ERNST & YOUNG GROUP
MRRS DECISION DOCUMENT
WHEREAS the Canadian securities regulatory authority or regulator (the "DecisionMaker") in each of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec,Nova Scotia, Newfoundland and New Brunswick (the "Jurisdictions") have received a jointapplication from Cap Gemini S.A. ("Cap Gemini") and Ernst & Young ManagementConsultants ("EYMC"), Ernst & Young Consulting Services Inc., Ernst & Young LLP(Canada), Ernst & Young Group Partnership, Ernst & Young Enterprises Inc. and ClarksonGordon Services Ltd. (hereinafter collectively referred to as the "E&Y Canadian Entities")(hereinafter Cap Gemini and the E&Y Canadian Entities collectively referred to as the"Filers") for a decision pursuant to the securities legislation of the Jurisdictions (the"Legislation") that the registration and prospectus requirements and the requirementsunder the Legislation applicable to issuer bids (the "Issuer Bid Requirements") shall notapply to trades in Cap Gemini securities as described hereafter;
AND WHEREAS pursuant to the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commission is the principalregulator for this application;
AND WHEREAS the Filers have represented to the Decision Makers as follows:
1. Cap Gemini is a société anonyme created under French Companies Act of July 24,1966 out of the merger, in 1996, of three information technology (IT) services andconsulting companies.
2. Cap Gemini is not and has no intention either of becoming a reporting issuer in anyprovince or territory of Canada or listing and posting for trading the Ordinary Shares(as hereinafter defined) on a recognized Canadian stock exchange.
3. Cap Gemini's Ordinary Shares are traded on the First Market of the Paris StockExchange under SICOVAM code 12533. They have also been included in theCAC 40 index since February 13, 1998 and are also included in the new Dow JonesSTOXX and Dow Jones Euro STOXX European indexes.
4. Of the E&Y Canadian Entities, EYMC, Ernst & Young LLP (Canada) and E&YGroup Partnership are partnerships governed by the laws of Ontario; and Ernst &Young Consulting Services Inc., Ernst & Young Enterprises Inc. and ClarksonGordon Services Ltd. are corporations governed by the laws of Ontario.
5. None of the entities comprising the E&Y Canadian Entities is a reporting issuer inany province or territory of Canada.
6. With respect to the proposed acquisition of the Canadian consulting business of theE&Y Canadian Entities by Cap Gemini (directly or through a wholly-ownedsubsidiary thereof to be incorporated ("Gemini Acquisition Co.")) (the "Acquisition"),a Canadian Joinder Agreement was executed on February 28, 2000 among CapGemini, the E&Y Canadian Entities and each Adhering Partner (as hereinafterdefined) (the "Canadian Joinder Agreement").
7. As required, partners holding more than two-thirds in capital of all the partners ofEYMC, Ernst & Young LLP (Canada) and Ernst & Young US LLP approved theAcquisition and more than 75% by headcount of the Consulting Partners (ashereinafter defined) separately approved the Acquisition. A special shareholdermeeting of Cap Gemini to approve the acquisition by Cap Gemini of the world-wideconsulting business of the E&Y Group and the issuance of ordinary shares of CapGemini (the "Ordinary Shares") in connection with such acquisition is anticipatedto be held on or about May 23, 2000.
8. In connection with the closing of the Acquisition (the "Closing"), the followingprincipal transactions have occurred or will occur:
(a) The E&Y Canadian Entities formed a New Brunswick corporation onFebruary 25, 2000 called 511340 N.B. Inc. ("Newco") as a wholly-ownedsubsidiary of EYMC.
(b) Newco will, prior to the Closing, acquire the consulting business carried onby the Consulting Partners (as defined hereafter) of EYMC (including theassets related thereto owned by the E&Y Canadian Entities). As a result ofthese transactions, Newco will own the various assets of, and employ thepeople carrying on, the consulting business in Canada.
(c) At closing, EYMC will transfer to Cap Gemini or Gemini Acquisition Co.100% of the issued and outstanding shares in the capital of Newco. Inconsideration therefor, Cap Gemini will issue (directly, or through GeminiAcquisition Co.) a certain number of Ordinary Shares to EYMC, whichnumber represents less than 2% of the total number of outstanding OrdinaryShares.
(d) EYMC will direct Cap Gemini or Gemini Acquisition Co. to deliver to eachAdhering Partner (i.e., partner of EYMC engaged in the consulting business("Consulting Partner") or partner of EYMC not engaged in the consultingbusiness ("Non-Consulting Partner") who, at the Closing Date (immediatelyafter the special shareholder meeting of Cap Gemini), has become a partyto the Canadian Joinder Agreement pursuant to a Partner TransactionAgreement (as hereinafter defined)), a number of Ordinary Shares to bedistributed to each of them as a partnership distribution. The number ofOrdinary Shares to be distributed to each Adhering Partner will bedetermined by the EYMC Chair/CEO Committee. Such Ordinary Shares willbe directed to the Adhering Partners by transfer to one or more custodialaccounts formed to hold Ordinary Shares (a "Custodial Arrangement") onbehalf of such Adhering Partner in order to secure each such AdheringPartner's non-competition and related obligations to Newco and Cap Gemini.The Non-Consulting Partners and Consulting Partners will be allocatedOrdinary Shares. The balance of Ordinary Shares will be kept by EYMC andwill be used for transaction costs and retirement funding.
(e) In addition, a number of Ordinary Shares payable to the US partners inconnection with the acquisition by Cap Gemini of the consulting businesscarried on in the United States by the E&Y Group equal to approximately 5%of the number of Ordinary Shares payable to EYMC will be remitted by Ernst&Young LLP (US) to EYMC.
(f) Each person who will receive Ordinary Shares pursuant to the CanadianJoinder Agreement will accept such shares subject to the relevantrestrictions and other provisions specified in respect thereof in the followingagreements to be executed on the Closing Date:
(i) the Global Shareholders Agreement of Cap Gemini to be executed byeach person who will receive Ordinary Shares (the "ShareholdersAgreement") (the Shareholders Agreement will not be signed by theConsulting Partners);
(ii) the Partner Transaction Agreement to be executed by each AdheringPartner (the "Partner Transaction Agreement") whereby he or sheagrees to the essential terms of the transactions contemplated in theCanadian Joinder Agreement;
(iii) the Canadian Joinder Agreement;
(iv) the custodial documents establishing the Custodial Arrangement(s)by which Ordinary Shares will be held in custodial accounts fordefined periods of time to secure certain obligations of the AdheringPartners (see below);
(v) the CG Agreement to be executed by the Adhering Partners whichare Consulting Partners, which agreement will set forth the terms ofemployment of such Consulting Partners with Newco.
(g) The Ordinary Shares will be sold in a series of secondary offerings on theParis Stock Exchange in accordance with the terms of the ShareholdersAgreement. The current schedule of such secondary offerings is as follows:
|Date||Percentage of Ordinary Shares
issued in connection with theacquisition by Cap Gemini of theconsulting business of the E&Y Group
|Closing Date or shortlythereafter||25 to 50%|
|April 1, 2001||Amount by which first
offering is less than 50%
of Closing Date
of Closing Date
of Closing Date + 300days
The above percentages are based on overall Ordinary Shares paid in theseveral different countries where Cap Gemini will acquire the consultingbusiness of the E&Y Group, but it is expected that the Canadianpercentages will be the same as the overall percentages. None of theseunderwritten secondary offerings will be in Canada.
(h) Cap Gemini and the E&Y Canadian Entities have agreed in the CanadianJoinder Agreement that, as a condition to closing, the Ordinary Shares shallhave been admitted to trading on the Primary market (Premier Marché) ofthe Paris Stock Exchange and to the transaction of SICOVAM (SociétéInterprofessionelle pour la compensation des valeurs mobilières).
(i) For a period of five years following the Closing, the Ordinary Shares issuedto Adhering Partners will remain subject to forfeiture provisions. Inparticular, Adhering Partners who breach certain covenants in favour ofNewco and/or Cap Gemini will have portions of their Ordinary Shares (orproceeds from the sales thereof pursuant to the secondary offerings)forfeited back to Newco and/or Cap Gemini based on agreed percentagesover the five year period, depending on whether the Adhering Partner is aNon-Consulting Partner or a Consulting Partner, as described below. TheOrdinary Shares forfeited to Newco will be reallocated by Newco to otheremployees of Newco, as determined by a committee of three persons.
(j) In addition, Non-Consulting Partners may forfeit Ordinary Shares to EYMCin the event they breach particular covenants to the E&Y Canadian Entities.
(k) As part of the transactions contemplated in the Canadian JoinderAgreement, Cap Gemini will set aside a small number of Ordinary Shares forthe employees of Newco, which Ordinary Shares either will be issued to atrust on behalf of the employees of Newco or will be reserved for futureissuance for the benefit of such employees.
(l) In addition, EYMC has agreed that a small number of Ordinary Shares of thetotal number of Ordinary Shares payable to EYMC will also be set aside forthe benefit of employees of Newco.
(m) The Ordinary Shares to be distributed pursuant to paragraphs (k) and (l)above will be transferred to a trust for future distribution to certain keyemployees of Newco over a period of about three years on a discretionarybasis based on continuing employment, performance, future potential andlength of service.
9. As mentioned above, once issued, the Ordinary Shares will be sold in a series ofsecondary offerings on the Paris Stock Exchange. Accordingly, it is reasonable toexpect that there will be no flow-back of the Ordinary Shares in Canada.
AND WHEREAS under the System, this MRRS Decision Document evidences thedecision of each Decision Maker (collectively the "Decision");
AND WHEREAS the Decision Makers are satisfied that the test contained in theLegislation that provides the Decision Maker with the jurisdiction to make the Decision hasbeen met;
THE DECISION of the Decision Makers under the Legislation is that the trades inOrdinary Shares described in paragraph 8 above are exempt from the prospectus andregistration requirements, provided that any subsequent trade in such Ordinary Sharesshall be subject to the prospectus and registration requirements unless:
(a) an exemption from such requirements is available under the applicable Legislation,or
(b) such subsequent trade takes place over a stock exchange or market outside ofCanada;
THE FURTHER DECISION of the Decision Makers is that any forfeitures ofOrdinary Shares as described in subparagraph 8(i) above are exempt from the Issuer BidRequirements.
May 23rd, 2000.
"Howard I. Wetston" "R. Stephen Paddon"